How Book Royalties Work
This is one of those basic topics about which you may be confused if you’re just entering the world of publishing. You’ve heard the terms advance and royalties but you’re not quite sure how it all works. I’ll try to explain as simply as possible.
The concept of a royalty is that the author receives a percentage of the revenue for each book sold. The exact percentage can’t be generalized because it depends on a variety of factors: the size of the publisher, whether it’s a CBA or ABA house, the author’s platform and marketability, and each publisher’s own criteria (of which you may never be aware).
Keep in mind that as technology continues to develop and publishing models change, this age-old royalty model is going to be changing, too. Very soon it may be out of date, but this is the way it has been for decades.
Most publishers pay the royalty based on the cover price (or retail price) of the book. CBA publishers usually pay royalties based on the NET price of the book, that is, the price at which the publisher sold the book to the bookstore.
Royalty rates vary widely, so keep in mind I’m generalizing wildly here, but just to give you an idea:
General market publishers, first time author:
Hardcover royalty: 10% to 15% of retail
Trade paperback royalty: 6.5% to 7.5% of retail
Mass market paperback royalty: 7.5% to 10% of retail
CBA publishers, first time author:
Hardcover or trade paperback royalty: 14% to 18% of net
Mass market paperback royalty: 8% to 12% of net
Here’s a hypothetical example for a general market (not CBA) hardcover, first-time author:
Cover price: $25.00
Royalty rate: 10% of retail = $2.50. You make $2.50 on every book sold.
Let’s say your advance was $15,000. That means you’ve already been paid the first $15k of your royalties. After you earn $15,000 in royalties, you’ll start seeing royalty checks.
How many copies do you have to sell to earn back your $15,000 advance?
Answer: 6,000 books. ($2.50 per book x 6,000 books = $15,000 advance)
After you sell 6,000 copies, you will begin to see royalty checks. $2.50 for every additional book sold.
Here’s a hypothetical example for a CBA trade paperback:
Cover price: $13.99
Net price: $6.30 (sold to bookstore at standard 55% discount)
Royalty rate: Let’s say your starting royalty rate is 16%. 16% of net = 16% of $6.30 = $1.01
You make $1.01 on every book sold.
Let’s say your advance was $5,000. You need to earn $5,000 in royalties before you start seeing royalty checks. How many copies do you have to sell to earn back your advance?
Answer: 4,951 copies. ($1.01 x 4,951 = $5,000)
After you sell 4,951 copies, you will begin to see royalty checks. $1.01 for every book sold.
**This is vastly simplified to help you understand!**
Your contract will specify royalty rates for hardcover, trade paper, and mass market paper as well as large print, book club, audio editions, electronic editions, etc. It will also specify the terms under which they’ll pay your royalties: how often, how much they hold in reserve against returns, etc. I’m not going to explain all of this right now; suffice to say, the royalties are not as simple as I’ve made them appear above.